Operations Management

Introduction To Learning Curves Module E

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E-1

2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Learning
Learning: Relatively permanent change in behavior due to repetition &

rewards

2 Types of learning

Individual Organizational First observed in 1936 in airplane industry

Results in learning curve effect

PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

E-2

2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Learning Curve Effect

Time needed to produce a unit decreases with each additional unit

Time needed decreases at a decreasing rate as cumulative production increases Decrease in time follows an exponential curve called learning or experience curve
PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

E-3

2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Learning Curve Graph

Hours per unit, TN
120 100 80 60 40 20 0 0 100

TN = (100)(N log.90/log2)

Cumulative units, N
E-4

200

300

400

PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Factors Affecting Learning Curves

Material Workers Skills Work Methods

Product Design Continuous Improvement Methods

PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

Learning Curve

Tools

Process Design
E-5
2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Learning Curves Vary by Product and Industry

Aircraft Assembly (1925-57): 80%
Calculator (197578): 74%

1995 Corel Corp.

Heart Transplants (1985-88): 79%

1995 Corel Corp. PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

E-6

2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Learning Curve Applications

Internal

Determine labor standards Establish labor costs & budgets Scheduling Purchasing Subcontracting Determine volume-cost changes Evaluation of company and industry performance
E-7
2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

External

Strategic

PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

Criticisms of Learning Curves

Lack strong theoretical justification Intermingle variables

1984-1994 T/Maker Co.

Learning effects Economies of scale Technological improvements

Focus on cost not profit

PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

E-8

2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Developing Learning Curves

Arithmetic approach
Uses relationship: T2N = L * TN Useful only if values doubled

Logarithmic analysis
Uses relationship: TN = T1 N log L / log 2 Can find time for any value of N
N = Unit of interest; T1 = Time for unit 1

Learning curve coefficients approach

Uses relationship: TN = T1C (from Table)
PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

E-9

2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Learning Curve Coefficients Table

Unit (N) 1 2 3 4 : : 80% Unit Total Time Time 1.000 .800 .702 .640 :
E-10

Table E.3 P. 838

85% Unit Total Time Time 1.000 .850 .773 .723 : 1.000 1.850 2.623 3.345 :

1.000 1.800 2.502 3.142 :

PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Excel OM Arithmetic Sample

PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

E-11

2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Learning Curves Determining Time Example

Youre a planner for Viking Ships. The first boat took 125,000 labor-hours to make. Boats 2 & 3 were produced with a learning factor of 85%. How long will the 4th boat take so that raiding can begin?

1995 Corel Corp.

PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

E-12

2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Arithmetic Approach
Formula: T2N = L * TN

1st unit:
2nd unit:

T1 = 125,000 hr.
T2 = L * T1 = .85 * 125,000 = 106,250 hr. T4 = L * T2 = .85 * 106,250 = 90,312 hr.
E-13
2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

4th unit:

PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

Logarithmic Approach
Formula: TN = T1 (N log L / log 2)

N = Unit of interest T1 = Time for unit 1 L = Learning rate

T1 = 125,000 hr. 4th unit: T4 = T1 (N log L / log 2) = 125,000 (4 log .85 / log 2) = 90,312 hr.
E-14
2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

Coefficient Approach
Formula: TN = T1 C

N = Unit of interest T1 = Time for unit 1 C = Learning curve coefficient from table

T1 = 125,000 hr.; C = .723 from Table E3 4th unit: T4 = T1 C = 125,000 * (.723) = 90,375 hr. (rounding C)
E-15
2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

Learning Curves Determining Rate Example

If you Know the First Ship took 125,000 hours to construct, And the 4th ship took 100,000 hours to construct What will your Learning Curve Be? Excel OM >> Learning Curves >> Determining The Rate
PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

E-16

2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Learning Curves and Strategy

Hours per unit 120 100 80 60 40 20 0 0
For a low price, high volume strategy, a firm must lower unit hours & costs to maintain profit margins (i.e., steeper curve).

100 200 Cumulative units

E-17

300

400

PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458

Learning Curves and Strategy

To pursue a learning curve steeper than that of the industry, a firm must:
follow an aggressive pricing policy focus on continuing cost reduction and productivity improvement build on shared experience keep capacity growing ahead of demand

PowerPoint presentation to accompany Operations Management, 6E (Heizer & Render)

E-18

2001 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458